Financial Illiteracy

I had the opportunity this week to hear the very sad story of a widow who was exploited by people she trusted. Just after her husband died she made the decision to leave Victoria where she had lived her whole life and move north. Leaving behind painful memories of a happy life was a big and difficult decision, and the last thing someone in that situation expects is be to be screwed over by their bank.

This lady was classified as asset rich cash poor – she owned property worth a significant sum but had no income, not even a pension. The family finances were always something that her late husband had organised. After all, she is from the generation who would quite naturally see money matters as being the man’s responsibility.

When she came to purchase a new home her troubles began. Among the loan documents, written up by her bank, were figures showing that her income was around the $80,000 mark. It turns out that her signature had been photocopied from one part of the documentation and pasted into a number of other parts of the forged papers. The first that the widow herself knew of this was when she obtained copies of the paperwork from the Financial Ombudsman Service.

This story of fraud involving mortgage brokers and bank staff (including managers) is now part of a parliamentary inquiry where hundreds of ordinary Aussies have fallen victim. On the surface it would appear that the fraud was a result of bankers putting large commissions and threats over losing their jobs before the lives of the people sitting across the desk seeking loans. It would also appear that the targets by the financial institutions were not random.

In her story, the widow described herself before all this took place as being financially illiterate. She has since found herself being forced to learn quite a bit about money.

Moments after hearing her harrowing story I had the opportunity to ask a number of other people who had experienced similar situations with their lenders what their level of financial literacy was before they were defrauded.

I asked them, on a scale of 1 to 10, one being very low and ten being very high, what they considered their financial literacy to be as they walked into the first interview where the trouble started.

All of them had the same answer – zero.

Where would you score your level of financial literacy?

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